Profits, 450-MHz chips to come from AMD

SAN FRANCISCO--Advanced Micro Devices will release a 450-MHz version of the K6-2 and the first K6-3 chips toward the first part of 1999, and will turn a profit by this year's end, according to CEO Jerry Sanders.

The catch is that a return to black will require AMD to nearly double its market share in the next five months--an ambitious goal to say the least.

But AMD's technical and marketing plans stem from market realities, Sanders told an audience of investors and analysts at the BancAmerica Robertson Stephens in San Francisco today.

To return to profitability, AMD needs to boost quarterly sales to $650 to $700 million from its current level of $527 million. Increased revenues will have to come from increased sales of K6 and K6-2 processors, Sanders said, priced higher than the chips presently cost. At the same time, amid flat demand, AMD will have to steal market share.

The only known way to win customers and have them pay more is to give them faster chips and better performance, Sanders said. Thus the two goals are interwined.

"We're in a speed game," he said.

Sanders said that the company will likely return to profitability by the fourth quarter based on current sales projections for its K6 products. But the job won't be easy. K6 shipments will have to rise to 4 million a quarter, equivalent to a 16 percent market share.

By 2001, the company wants a 30 percent share, he added. Last quarter, AMD shipped 2.7 million microprocessors total. And the market is currently flat.

"There won't be an uptick until the first of the year," he said. "The semiconductor market is in the softest period I have ever seen. We've had three years of no growth."

Processor speed will not be the only method AMD will use to woo customers, but
it will be a chief one. Megahertz numbers hold sway with customers, so AMD
has to continually boost the clock cycles of its chips.

A 350-MHz version of the K6-2 will appear this quarter, while a 400-MHz version of the chip will follow in the fourth quarter. "Sharptooth," which is also known as the K6-3 to company observers, will now appear in the first part of 1999, he said. Earlier projections had the chip, which mimics the Pentium II in containing 256K of onboard cache memory, coming out in late 1998.

That is a tall order, according to some. AMD is currently having
trouble fulfilling demand in volume for the 333-MHz K6-2, according to Ashok Kumar, undermining its bid for more design wins. Chip dealers also report that they won't be able to sell the chip to customers until the first week or two of August.

Meanwhile, Kumar said that yields on the 350-MHz K6-2 samples are extremely low.

The company also continues to battle in the price war. New Celeron chips from Intel with the much-vaunted integrated cache memory arrive in August; Intel price cuts in September and October mean that AMD will have to reduce prices again, Kumar said. That will make it even more difficult to achieve the $100 average selling price, especially in light of the K6-3 delay.

Sanders said that the integrated "Mendocino" Celeron chips will not perform as well as the K6-2, but admitted that Intel prices affect AMD. The Sunnyvale company, after all, prices its chips in reaction to Intel's price moves.

The K-7, the next-generation chip for workstations and low-end servers, will appear in the first half of 1999. Although the first versions of the K7 will use aluminum as the basis for connecting circuits, copper chips will appear in samples in late 1999 and come out in volume toward the middle of 2000.

Speed aside, the company will try to emphasize other features, such as its 3DNow technology, through marketing and working with computer vendors.

In addition, Sanders said that two new deals with computer vendors over the K6-2 are in the works. Compaq, which uses the K6, could be one of the vendors since the company has yet to adopt the K6-2 for desktops, according to one source.